Biden arrives in Japan for G7 Leader Summit

EU mid-market update: Biden arrives in Japan for G7 Leader Summit; Big UK fashion retailer notes it is seeing softening in American markets trading.

Notes/observations

- Risk appetite finds fresh tailwinds on US debt ceiling optimism.

- G7 Leader Summit to begin in Japan; focus on Russian sanctions enforcement and semiconductor partnerships.

- EU session participation light due to Ascension Thursday holiday.

- Corporate news recap: UK fashion brand Burberry reported results and admitted its Americas market is now a challenge, under pressure and it is seeing softening in trading, noting younger American customers are spending less; Cisco during the earnings call said April was a tiny bit better month than Feb and Mar; UK telecom giant BT Group announced plans to cut up to 55K jobs during next decade.

Asia

- Japan Apr Trade Balance: -¥432.4B v -¥600Be; Exports Y/Y: 2.6% v 3.0%e; Imports Y/Y: -2.3% v -0.6%e.

- Australia Apr Employment Change: -4.3K v +25.0Ke; Unemployment Rate 3.7% v 3.5%e.

- Japan PM Kishida stated that the Govt would work on expanding FDI into Japan. Comments made after he met the heads of the world’s largest chipmakers (**Insight: Japan looking for ways to grow chipmaking at home for cutting-edge chips amid growing US-China tensions and as concern grows about over-reliance on Taiwan).

- New Zealand Budget forecasts 2023-24 budget deficit of NZ$7.6B and noted that a return to surplus would take place in 2026 (**Note: one year later than prior forecast. Gross bond issuance for four years to June 2027 was raised from NZ$100B to NZ$120B. Raised its 2023 GDP from -0.3% to +1.0% (no longer forecasting a recession) while maintaining the 2024 GDP growth at 2.1%.

Europe

- EU said to be willing to sign an agreement with the UK to boost co-operation on the regulation of financial services.

- UK PM Sunak to agree to historic UK-Japan "Hiroshima Accord" ahead of G7 Summit. UK to announce a new ‘semiconductors partnership’ with the Japanese government and step up defense cooperation with Japan to uphold stability in Indo-Pacific.

Americas

- House Speaker McCarthy (R-CA) reiterated view that a debt ceiling agreement by Sunday was 'doable'.

- Florida Gov Ron DeSantis said to officially enter the 2024 US presidential race next week.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.55% at 466.53, FTSE +0.63% at 7,771.57, DAX +1.43% at 16,179.25, CAC-40 +0.87% at 7,464.14, IBEX-35 +0.55% at 9,262.01, FTSE MIB +1.11% at 27,498.00, SMI -0.71% at 11,437.78, S&P 500 Futures +0.10%].

Market focal points/key themes: European indices open higher across the board and advanced into the green as the session progressed; Nordics and Switzerland closed for holiday; sectors leading the way higher include industrials and energy; lagging sectors include materials and real estate; oil & gas subsector supported with WTI consolidating above $70/bbl; Informa to acquire Winsight; Geely raises stake in Aston Martin; earnings expected in the upcoming US session include Bath Body Works, Dole and Walmart.

Equities

- Consumer discretionary: Burberry [BRBY.UK] -6.0% (earnings; color on Americas spending), International Distributions Services [IDS.UK] -1.5% (earnings; no dividend), EasyJet [EZJ.UK] +1.0% (earnings; bookings color).

- Energy: Saipem [SPM.IT] +4.0% (large orders), Petrofac [PFC.UK] +13.5% (large order).

- Financials: Deutsche Bank [DBK.DE] +4.0% (said to settle Jeffrey Epstein accusers' suit).

- Industrials: Aston Martin Lagonda [AML.UK] +13.0% (Geely takes stake), Volkswagen [VOW3.DE] +2.0% (cost saving; revamping core brand).

- Technology: Future plc [FUTR.UK] -15% (earnings; outlook).

- Telecom: BT Group [BT.A.UK] -7.5% (earnings; plans to cut up to 42% of all jobs during next decade to realign business).

Speakers

- ECB’s De Guindos (Spain) stated that service inflation was the most worrying for ECB. Still scope to continue with rate hikes but most of the tightening had already been done.

- ECB's Muller (Estonia) stated that it was premature to expect ECB to cut rates early in 2024.

- Philippines Central bank Policy Statement noted that the prior rate hikes continued to work their way through the economy. Its baseline scenario saw a gradual return of inflation to target band in the forecast horizon but risks remained to the upside. Prepared to respond to emerging threats of inflation and resume tightening if necessary.

- President Biden commented after meeting Japan PM at the G7 that would hold Russia accountable for its brutal aggression in Ukraine.

Currencies/fixed income

- USD continued to be on some firm footing. Greenback had been aided by recent sign the Chinese economy post-COVID recovery was losing momentum. Dollar also aided by optimism over US debt ceiling talks.

- USD/JPY approaching the 138 area for fresh YTD highs in the pair.

- AUD/USD was softer after Australia job report possibly complicating any plans for RBA to hike again.

Economic data

- (ES) Spain Mar House transactions Y/Y: -5.7% v -6.6% prior.

- (CZ) Czech Apr PPI Industrial M/M: -1.2% v -0.2%e; Y/Y: 6.4% v 7.5%e.

- (TR) Turkey Central Bank (TCMB) May Inflation Expectation Survey: Next 12 Months: 29.8% v 31.0% prior.

- (PH) Philippines Central Bank (BSP) left its Overnight Borrowing Rate unchanged at 6.25% (as expected).

- (ES) Spain Mar Trade Balance: -€0.2B v -€2.5B prior.

- (HK) Hong Kong Apr Unemployment Rate: 3.0% v 3.0%e.

Fixed income issuance

- (ES) Spain Debt Agency (Tesoro) sold total €6.512B vs. €5.5-6.5B indicated in 2025. 2027, 2028 and 2043 bonds.

- Sold €1.603B in 0.00% May 2025 SPGB bonds; Avg Yield: 3.046% v 2.351% prior; Bid-to-cover: 1.82x v 2.37x prior.

- Sold €1.307B in 0.00% Jan 2027 SPGB bond; Avg Yield: 3.027% v 2.667% prior; Bid-to-cover: 1.72x v 2.19x prior.

- Sold €1.482B in 1.4% July 2028 bonds; Avg yield: 3.086% v 1.493% prior, Bid-to-cover: 1.65x v 1.49x prior.

- Sold €2.12B in 3.45% July 2043 SPGB bonds; Avg Yield: 3.991% v 3.469% prior; Bid-to-cover: 1.24x v 1.84x prior.

Looking ahead

- (EG) Egypt Central Bank Interest Rate Decision: Expected to leave Key Rates unchanged.

- (IL) Israel May 12-month CPI Forecast: No est v 3.0% prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell bonds.

- 06:00 (PT) Portugal Apr PPI M/M: No est v -2.2% prior; Y/Y: No est v 0.2% prior.

- 06:00 (CZ) Czech Republic to sell Bills.

- 06:00 (RO) Romania to sell RON700M in 8.25% 2032 Bonds.

- 06:45 (US) Daily Libor Fixing.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) May Philadelphia Fed Business Outlook: -20.0e v -31.3 prior.

- 08:30 (US) Initial Jobless Claims: 252Ke v 264K prior; Continuing Claims: 1.82Me v 1.813M prior.

- 08:30 (CL) Chile Q1 GDP Q/Q: 1.0%e v 0.1% prior; Y/Y: -0.9%e v -2.3% prior.

- 08:30 (CL) Chile Q1 Current Account: +$0.3Be v -$5.0B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:00 (RU) Russia Gold and Forex Reserve w/e May 12th: No est v $599.2B prior.

- 09:05 (US) Fed's Jefferson on Economic Outlook.

- 09:30 (US) Fed's Barr testifies before Senate Banking Committee.

- 10:00 (US) Apr Existing Home Sales: 4.30Me v 4.44M prior.

- 10:00 (US) Apr Leading Index: -0.6%e v -1.2% prior.

- 10:00 (CA) Bank of Canada (BOC) Financial System Review.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- (EG) Egypt Central Bank Interest Rate Decision.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 13:00 (US) Treasury to sell 10-Year TIPS Reopening.

- 15:00 (MX) Mexico Central Bank (Banxico) Interest Rate Decision: Expected to leave Overnight Rate unchanged at 11.25%.

- 15:00 (AR) Argentina Apr Trade Balance: +$0.6Be v -$1.1B prior.

- 18:45 (NZ) New Zealand Apr Trade Balance (NZD): No est v -1.3B prior; Exports: No est v 6.5B prior; Imports: No est v 7.8B prior.

- 19:01 (UK) May GfK Consumer Confidence: -27e v -30 prior.

- 19:30 (JP) Japan Apr National CPI Y/Y: 3.5%e v 3.2% prior; CPI Ex Fresh Food (core) Y/Y: 3.4%e v 3.1% prior; CPI Ex Fresh Food/Energy (Core-Core) Y/Y: 4.2%e v 3.8% prior.

- 22:35 (CN) China to sell 30-year Upsized Bonds.

- 22:35 (CN) China to sell 3-month Bills.

- 23:30 (JP) Japan to sell 3-Month Bills.